Tyre exports, sales outlook put Balkrishna on fast track
Weak rupee to aid in revenue growth for the off-the-road tyre manufacturer
Even as peers are set to witness a sharp sequential decline in the June quarter, the only pure-play auto ancillary exporter in India, Balkrishna Industries (BIL) is expected to be the standout performer in the quarter, led by higher tyre exports.
Moreover, sales outlook for the key segments of agriculture and offthe-road (OTR) tyres, too, remain robust. A depreciating rupee should also help the exporter post better revenue growth rates than peers, going ahead.
Industry export data for May, the last month for which data is available, points to an 85 per cent yearon-year (YOY) growth in the OTR segment. Also, demand for agriculture applications remained healthy, registering a growth of 67 per cent.
Close to 64 per cent of BIL’S sales has been to the agriculture sector and about a third are in the OTR category.
Nishant Vass and Pratit Vajani of ICICI Securities, said, “On the OTR side, momentum picked up, which signals steady increase in mining and construction offtake. We believe the outlook for global agriculture exports remains strong, given the rising commodity price environment. OTR demand is also likely to be supported by infrastructure and mining investments in FY22 and FY23 as investments pick up.”
Balkrishna Industries, which posted sales volume of 2.27 million tonnes in FY21, is targeting a growth of over 10 per cent, given its volume target band of 2.5-2.6 lakh million tonnes for FY22.
While growth momentum has been strong, what has helped the company perform better than peers in the June quarter is its reliance on overseas markets, which are better placed than the local market. Balkrishna Industries gets 78 per cent of its revenues from the export market with two thirds of sales coming from Europe and the Americas. Given this, the depreciating rupee is another positive. From its lows at the end of May, the rupee has slipped 3 per cent against the US dollar and is currently trading at ~74.44 to the greenback.
The company is expected to be an outlier in the auto pack on a sequential basis, given its performance in the June quarter. Estimates by analysts at Nomura indicate that BIL is the only company, which will post revenue growth (5 per cent) on a sequential basis as compared to peers across listed auto majors and suppliers that are expected to post declines.
Operating profit margins, however, are expected to come down 180-200 basis points sequentially to 29-30 per cent due to higher commodity prices, limited price hikes and rising freight costs.
While the company faces some headwinds in the Indian market, given the muted volumes in some segments, a normal monsoon will help boost volumes to the agriculture segment.
Though prospects are sound for the niche tyre maker, this has been factored into the stock price, which is up over 41 per cent over the last three months. The stock is trading at over 30x its FY23 earnings estimates; investors should await meaningful corrections before considering the stock.